This is why Tesla always overpromises and underdelivers

Tesla's stock has spent the past week
being downgraded by Wall Street analysts who cover the
company.

Analysts at Morgan Stanley, Baird, and Barclays all lowered their
price targets. Tesla target share prices among the analysts
community are all over the map, with some banks offering bullish
expectations while others think the stock will slide from its
current level of about $220.

From the outside, this might seem kind of weird. Didn't Tesla
just
pull the cover off it newest vehicle, the fast and sexy Model
X SUV? Isn't the company being run by the most interesting CEO in
the world?

Yes and yes, but even a groundbreaking new vehicle, complete with
exotic "falcon wing" doors, a 0-60 time that will probably rival
some legendary sports cars, and all Elon Musk's charisma and
showmanship can't overcome what Wall Street is pondering most
urgently when it comes to Tesla.

Sales.

For Tesla, the critical issue is deliveries: Can it get cars into
customer hands and put money in the bank?

Simple.

A history of misses

Unfortunately, Tesla now has a well-established history of
missing its delivery goals. For two years running, the fourth
quarter has looked iffy. Last year, Tesla projected 35,000
deliveries, but it fell short. It succeeded
in building all those cars, but some deliveries
slipped into the first month of 2015.

In 2015, Musk and his team projected 55,000 deliveries, but
midyear adjusted that figure to a range of between 50,ooo and
55,000. Once again, Tesla will need to run full out to deliver at
the low end of that revised prediction: almost 17,000 vehicles
before the close of the year.

The possibility of a miss on deliveries — plus other factors,
mainly the high sticker price on the first examples of the Model
X, well north of $100,000 — has engendered a "been here, seen
that" attitude among analysts who remember what happened last
year, providing an excuse to pull back on target prices.

So why does Tesla do this: overpromise and underdeliver?

Because, at this point in the company's history, there's nothing
to be gained from underpromising and overdelivering.

Don't get me wrong, Tesla has wildly overdelivered on the product
side. It's cars are widely considered, by owners, observers, and
the motoring media, to be incredible.

But on the business side, the story has generally been one of
missed targets and delayed launches. The Model X, spectacular
though it may be, was two years late. There's certainly no
guarantee that Tesla next vehicle, the mass-market Model 3,
slated to arrive in 2017, will be different. In fact, a betting
man might prepare himself for 2018 or 2019.

This isn't troubling. This is good business.

Sliding again.Google
Finance

The vision thing

Ultimately, Tesla is a company constructed out of a vision:
change the world. Replace fossil-fuel-powered transportation with
clean vehicles. You might be skeptical about this, but trust me —
this is what Musk believes. This is what drives him, far more
than money. (He's already spent a fortune once and would be happy
to do it again.)

Job One at Tesla is to nurture and perpetuate that vision. Musk
doesn't want Tesla to grow up to be Ferrari — he wants it to
displace the Toyotas and GMs of the world, or at least compel
them to join him in transforming the way we get around.

Ferrari doesn't need to assure anyone that it will beat
expectations. The Italian supercar maker, now scheduled to launch
an IPO later this month that will
value the company at $10 billion, says it will build about
7,000 beautiful cars every year, and it builds 7,000 beautiful
cars every year, selling them all. In the future, it may build
more. But everything would be fine for the brand if it remained
where it is.

Tesla is a completely different story. You don't change the world
without expressing ambitious stretch goals. Ultimately, you don't
have much of a story without ambitious stretch
goals. So Musk really has no choice but to
overpromise, knowing that underdelivering is probable.

This causes plenty of volatility with the stock price, the $100
swings over time. But anyone who understands the auto industry
knows what Tesla is up against. There's a reason why new car
companies come along only every few decades. And don't forget
that Tesla isn't just trying to be a new car company — it's
trying to be a car company that's commercializing a technology,
electric propulsion, that has never played a significant
role in the history of the automobile.

No
what Tesla wants to be.REUTERS/Arnd
Wiegmann

No Big Failure

Tesla's small failures, in the this context, are preferable to
the Big Failure, which would of course be the company vanishing
like so many car-of-the-future startups. Musk presents Tesla as
being better than it is — better at technology, better at
manufacturing — because that fuels the narrative. It's
analytically frustrating to see Tesla heading once again into a
fourth quarter that will likely disappoint. But in the grand
scheme of things, it's a blip.

It's a blip because to really get Tesla, you need to accept the
vision and put yourself 10 or 20 years into the future. If you do
that, you can imagine a world in which 500,000 Teslas hit the
road every year and the global fleet of vehicles is being
decisively converted from gas power to electric.

In that world, whether Tesla delivered 50,000 cars in 2015 or
48,000 is a forgotten data point. And whatever Tesla
overpromised has been completely superseded by the vastness of
its eventual overdelivery. If you accept that Tesla is on this
path, then you need to prepare to be continually disappointed for
the next 10 years. This is a company built on a big idea. And big
ideas don't often happen on schedule.